The attempt by the Minister of Construction and Housing, Yitzhak Goldknopf, to rebrand himself as a fighter against the cost of living four months before the elections, hit a wall this morning at the Ministry of Finance. Due to the opposition of the Minister of Finance, Bezalel Smotrich, the discussion in the Ministerial Committee for Legislation on the bill to reduce VAT to 17% was postponed by two weeks.

The proposal by the chairman of United Torah Judaism comes at a sensitive political timing, just a few months before the opening of the ballots, and has drawn fierce criticism from the professional echelon. The Ministry of Finance and the Tax Authority warn that the tax reduction, which was only recently raised to 18% to fund war expenses, will deduct approximately NIS 8.5 billion per year from the state treasury.

This immense sum, as clarified in the economic system, will force the government to implement painful horizontal cuts or to increase the deepening deficit.

Senior officials at the Ministry of Finance did not mince words and directly attacked the initiative: "The proposals to reduce VAT are disconnected from the budgetary needs of the State of Israel, and therefore, like many other proposals, they will not be adopted by the government. It is easy to scatter declarations about lowering taxes, without understanding the economic significance and without dealing with the price and the implications."

Beyond the budgetary hole, the Ministry of Finance notes that Goldknopf himself raised his hand in January 2024 in favor of raising the VAT, and is now trying to lead a reverse move, just a few days after heading the protest against the arrest of yeshiva students evading enlistment. Now, following the brake applied by Smotrich, the coalition partners have two additional weeks to try and reach agreements, or alternatively – to bury the proposal permanently.